Repeal of the Medical-Device Tax Is Life-Saving Legislation

John Graham
, Insights into health care and entitlement reform.Opinions expressed by Forbes Contributors are their own.

The U.S. House of Representatives voted to repeal Obamacare's medical-device tax last Thursday. As I wrote last week, the medical-device tax is much more than a job-killing tax. It's a patient-killing tax, too. National Review Online's Patrick Brennan notes that Obamacare's excise tax has put MRI machines and pacemakers in the same category as cigarettes and alcohol.

Such excise taxes are not designed to raise much revenue, but to reduce the use of the taxed goods. It's certainly a strange way for the federal government to treat medical technology. In a properly functioning political system, it would be career suicide to support this deadly levy.

WASHINGTON - SEPTEMBER 17: U.S. President Barack Obama (C) speaks as Secretary of the Treasury Timothy Geithner (L) and Congressional Oversight Panel Chair Elizabeth Warren (R) listen during a Rose Garden announcement September 17, 2010 at the White House in Washington, DC. Obama has appointed Warren to be his assistant and special adviser to the Secretary of the Treasury on the Consumer Financial Protection Bureau. (Image credit: Getty Images North America via @daylife)

Unfortunately, it's not easy to get anything through a chamber led by a Democratic Senator who cannot muster one single vote in support of the Democratic President's budget. The New York Times'' Robert Pear is pessimistic, noting that President Obama has threatened a veto. The President stands against Senators Al Franken and Amy Klobuchar (both Democrats of Minnesota) and Elizabeth Warren (his former consumer-protection czar) who hopes to unseat Senator Scott Brown in Massachusetts. He also stands against 37 Democratic Representatives (one fifth of those who voted) who chose to repeal this new "death tax" alongside the House majority.

With whom does the President stand? I haven't heard or read anyone defending this tax on medical innovation. As the Wall Street Journal editorial board noted last Friday ("A Bipartisan Tax Repeal", by subsciption), those 37 Democratic votes brought the tally pretty close to a super-majority that would over-ride a presidential veto. The current bill pays for the repeal of the tax by increasing a clawback of subsidies that will make individuals dependent on Obamacare's Health Benefit Exchanges. These exchanges are new bureaucracies that Obamacare assumes will be established by states, but centrally controlled by the U.S. Department of Health & Human Services. They will drive the millions of people who will lose employer-based health benefits into government-dictated health plans.

Exchange subsidies are not untouchable. Democrats have already voted to repeal them partially in the "doc fix" passed at the end of 2010. The "doc fix" is an absurd (but necessary) ritual in which Congress engages at least once a year. It "fixes" the Medicare fee schedule for physicians. The fee schedule is a Soviet-style system of dictating doctors' fees that, if it had not been most recently "fixed" last February, would have resulted in cuts of 27 percent to physicians' payments under Medicare. Bundling Obamacare "mini-repealers" into the doc fix has proven to be a sure way of winning the President's signature.

To put things in perspective: A doc fix for only one year costs about $14 billion. The average annual cost of the medical-device tax is less than $3 billion. And funding its repeal with money from exchanges is an easy lift.

Few states are establishing exchanges, because they anticipate Obamacare's total defeat. This is a good thing. Even if Senate Democrats find it too difficult to vote for further cuts to exchange subsidies, those cuts in the current bill could be reduced by eliminating the Department of Health & Human Services' ability to grant money to states to establish Obamacare exchanges. These are not subsidies to individuals, but transfers from federal politicians and bureaucrats to state politicians and bureaucrats - which should make cutting them harder to demagogue.

A bill to cut these grants that was introduced in April 2011 would have saved $14 billion, almost half of the $29 billion ten-year haul from the medical-device tax. Secretary Sebelius has been trying to move these grants out the door, but most states have learned to resist their lure. Governor Walker of Wisconsin and Governor Brownback of Kansas sent back their grants. If the states don't even want the money, Congress should take away Secretary Sebelius' checkbook. That alone would get us over half way to paying for this bill.

Cutting exchange handouts in order to eliminate this tax on innovation is a no-brainer. Congress needs to keep moving on repealing the medical-device excise tax as soon as possible.